Tech companies find a way to fight “Patent Trolls”

Over the past few decades, the patent system has grown progressively. Today almost anything under the Sun that is made by man is considered patentable. Fuelling this is the increasing number of inventions made everyday. Organizations are seeking patents even for the minor modification they make in their original invention. Though this looks like a good trend, but like every coin has two sides, the patent system is also not untouched by the flip side.

It started with patent infringement law suits, wherein the defaulting party has to pay up huge amount of money as compensation. This created an opportunity for some. The opportunity of earning through the patent law suits. They are called the “Patent Trolls” who exist only to extort large payments out of cash rich companies. This trend is seen more in the technology space. The patent trolls seek to buy intellectual property to extract royalties from companies that rely on a particular technology.

Technology companies are known to pay up amounts to the tune of Millions of Dollars to settle the patent infringement law suits. This is becoming quite an annoying trend. Measures have been taken to curb this practice but haven’t seen satisfying results yet.

Technology heavy-weights like Google, Verizon Communications, Cisco Systems, Telefon AB L.M. Ericsson, and Hewlett-Packard among other have formed a group to tackle this. They are called the Allied Security Trust. This group plans to buy up key intellectual property before it is obtained by parties who might use it against them. To join the group, each company will pay about $250,000 and about $5 million into an agreement for future patent purchases. Considering the heavy amounts these companies end up paying in settlements, the amount for joining the group looks very minimal.

The number of patent-related law suits has seen an alarming rise in the recent past – nearly 2500 through October’07 from 921 in 1990. With the Allied Security Trust, the technology companies are hoping to stay clear of such law suits which cost them heavily.

Patent Filing Rises in India

Texas instruments, one of the largest chip makers in the world has seen a dramatic shift in the patent filing from their Indian R&D Offices. Since 1985, the Bangalore office in India, has filed over 500 patents. Another chip maker – NXP Semiconductors, also seems to have a similar story.

Patent Application filed by Indian Firms has grown annually by about 20% to about 35,000 applications in 2007-2008. (Source)

Writing a patent application is not a day’s work. In fact it’s almost as detailed and as complex as a legal contract. While the country is filing patents by the dozen, this could be one of the biggest opportunities for IP and legal processing centers to look inwards and drive revenues from servicing US Based technology giants with Indian offshore R&D Centers like Texas Instruments.

As patent filing continues to soar, so will legal implications and infringements. Courts will begin to get burdened by open cases and hard ruling judgments. The next decade should see exponential growth in business opportunities for services in the legal and IP verticals.

Patent Analysis and VC Funding

Small and medium-sized enterprises (SMEs) represent over 90 % of enterprises in most countries, worldwide. They are the driving force behind a large number of innovations and contribute to the growth of the national economy through employment creation, investments and exports.

Among these SMEs, technology start-ups form a decent sized category. In recent years, success of technology and scientific start-ups has encouraged equity investment from institutional investors. Not only are funds cash rich, but opportunities are abundant. However, this abundance has a flip side – the fact that there are so many startups, some are bound to unwittingly infringe on existing patented technology. After all, a VC investment is always a risk and institutional investors would like to derisk the investment as much as possible.

Due Diligence on the startup’s claims is not just a pre-requisite. It’s in the best interests of the investor to know his investment is not infringing on proprietary patented technology. When a VC is betting on a start-up’s Intellectual Property, the last thing he would like to see is the startup caught in a legal tassel for its intellectual property rights. An expensive lawsuit is a threat big enough for VCs to back out from what seems like a lucrative investment.

Tools like Patent iNSIGHT Pro – a powerful patent mining and analytics engine can give the VC an immediate insight into the ‘patent mesh’. The application can provide an investor insight into the startup’s claim, it’s viability in the present and future markets and most importantly, he can identify the ‘landscape’. This means he can understand how technologies have been raising investment in the past and the trends of how many of these technologies have made it big. He can evaluate the ‘fit’ with reference to the existing and potential competitors as well as customers. The tool will generate detailed information that will form the basis of warranting the success of the business model based around that technology.

Institutional investors are the one of the biggest beneficiaries of such Patent mapping and analysis tools. A powerful Patent analysis tool can help investors identify new opportunities and isolate technology IPs that could make it big tomorrow, based on trends and the patent landscape.

Milking Opportunities

Today’s enterprises continue to scale at a rapid pace and functions like IP and Licensing have started playing a very important role in the business. It’s no longer about getting copyrights and ensuring patent protection and preventing infringement. Today’s IP Research teams are the front runners in identifying trends, practices and technological changes that happen on a daily basis.

Not only that, IPR teams are continuously prowling to explore opportunities like IP acquisitions, mergers, takeovers or even an IP Sale. The last decade has seen a major shift in the abilities of an IPR team within an enterprise.

To understand better of how an IPR team can make an acquisition even more effective, lets say a major chip OEM is looking to acquire the technical IP of developing analog power circuits for a new technology like Wi Max. Now either the OEM invests heavily into R&D and their engineers develop what would be called a ‘competing technology’ or their management decides to acquire someone who ‘already has it’.

The IPR team digs through all patent applications and grants to recover the team that owns the IP to the technology like WiMax. Of course with the advent of media, that’s really not going to be a secret. The WiMax inventors also know there are people who would be pursuing them to buy out their hard work. They have all reasons to price their IP as high as possible. So how exactly does the IPR team add value to the acquisition?

By closely studying the patent landscape, a mesh can be identified that gives the OEM a list of all technologies that are needed for the WiMax technology to work. These could be as specific as an analog power supply design. These ‘neighboring’ technologies don’t all make sense to the WiMAX design, but they are required for a WiMAX based product to work. The IPR team identifies these and present to the OEM’s management. The OEM’s management now isolates these individual technology companies and begins to invest in them. Slowly over a period of a month, the OEM has acquired majority stake in most of these ‘neighboring’ technology companies. Only the WiMax owners remain.

Now since the OEM owns all the relating technologies, owning the WiMAX technology doesn’t seem like such a valuable proposition anymore. The OEM will literally squeeze the WiMAX IP out of the inventors. What once was a lucrative invention becomes a scrap sale.

As you can see, the IPR team not only reduced the cost of acquisition, but identified exact players who would contribute heavily to the growth of the WiMAX industry. The OEM in this case, would slowly gain a monopoly since almost all the technologies in the WiMAX space now belong to the OEM.